A view of the exterior of the Citibank headquarters in New York, New York, U.S., May 20, 2015. REUTERS/Mike Segar/File Photo

NEW YORK, April 14 (Reuters) – Citigroup Inc (CN) could lose up to $3 billion on its exposures to Russia, down $2 billion from expectations, the bank said on Thursday while noting a reduction of almost half of its profit in the first quarter.

The bank said it had reduced its total exposure to Russia since December from $2 billion to $7.8 billion and would no longer lose more than $3 billion in an extremely adverse scenario, compared to nearly $5 billion estimated last month.

The disclosure came as Citi – the most global of US banks – added $1.9 billion to its reserves in the quarter to prepare for losses from direct exposures in Russia and the economic impact of the war. in Ukraine.

That pushed credit costs to $755 million, a contrast to the $2.1 billion a year ago when it released loss reserves built up during the COVID-19 pandemic.

The turnaround was a key factor in the 46% drop in net profit from a year earlier.

Still, the resulting earnings per share of $2.02 per share beat analysts’ estimate of $1.55 who feared worse.

Citi shares rose on the report and were up 1.4% in afternoon trading.

“It was in line with our hopes of what we would see,” said Patrick Kaser, portfolio manager at Brandywine Global Investment Management and a longtime investor in the bank, who said he was “pleasantly surprised.”

The reduced exposure to Russia was a plus. “They seem to have navigated and managed their risk,” Kaser said.

Revenue fell 2% to $19.2 billion, less than some analysts had expected.

A key driver was a 43% drop in investment banking revenue as last year’s rush of dealings involving blank check firms waned, drying up underwriting fees. Equity underwriting revenue fell 78%.

Revenue from treasury and business solutions – Citi’s crown jewel business – rose 18% due to higher net interest income and fee growth.

“As the geopolitical and macroeconomic environment has become more volatile, we are executing the strategy we announced at our recent Investor Day,” Chief Executive Jane Fraser said in the earnings announcement.

Fraser later told analysts that she personally felt the added challenge of the pandemic when she had what she called “a brief encounter with COVID.”

Fraser is leading an overhaul of Citi, which is lagging behind the financial performance of its peers and must carry out orders from US banking regulators to fix its risk and compliance systems.

Its surge did push up costs, however, with spending up 10% in the quarter, excluding those related to divestitures in the consumer business in Asia.

REDEMPTIONS

Citi used the excess capital to repurchase shares. Unlike other big banks, its shares trade at a price below its net worth, which makes buybacks attractive.

The bank returned $4 billion to shareholders in the quarter, including $1 billion in dividends, and its share count was 6% lower than a year earlier.

Citigroup expects to make a “modest” level of buybacks in the second quarter that would be less than the $3 billion in the first quarter, Chief Financial Officer Mark Mason told reporters after the bank’s earnings release.

The first quarter redemptions came as Citi’s capital account was hit by unrealized losses on securities due to the recent rise in interest rates.

Its Common Equity Tier 1 capital ratio fell to 11.4% from 12.2% in December. The bank expects the ratio to rise to 12% by the end of the year as earnings add to its capital, Mason said.

Citi needs about $7 billion in capital to achieve that goal and expects about $4 billion to come from the close of previously announced sales of consumer banking businesses in Asia, Mason told reporters. analysts.

A similar, but worse, drop in the capital ratio was reported by JPMorgan Chase & Co (JPM.N) on Wednesday, heightening investor concerns that bank takeovers would be limited this year. Read more

Citigroup expects additional capital to come from sales of its consumer business outside the United States.

In Mexico, the bank is finding “significant interest” from potential buyers of its Citibanamex franchise, Fraser told analysts. It could still take “a few quarters” to get rid of the asset, she said.

Reporting by Manya Saini in Bengaluru and David Henry in New York; Editing by Aditya Soni, Matt Scuffham and Nick Zieminski

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